Affordable Access

Forbearance, subordinated debt, and the cost of capital for insured depository institutions



Using an explicit model for subordinated debt that considers the possibility of FDIC forbearances, the authors show that forbearance 1) alters the required rate of return on subordinated debt while increasing its market value and 2) weakens the effectiveness of such debt as a source of market discipline.

There are no comments yet on this publication. Be the first to share your thoughts.